International Business Competing in The Global Marketplace 10th Edition Hill Solutions Manual 1

Chapter 05 - Ethics in International Business
International Business Competing in the

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Ethics in International Business 5

• Describe the different philosophical
approaches to ethics.
Learning objectives • Explain how managers can

incorporate ethical considerations
into their decision making.
• Understand the ethical
issues faced by
international businesses.
• Recognize an ethical
dilemma.
• Identify the causes of

unethical behavior by
managers.
5-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
This chapter looks at ethics in international

business. Ethics becomes an issue across
nations because of differing political systems,
economic systems, legal systems and cultural
values. What is acceptable behavior in one
nation may be considered unethical in
another.
First, some of the more common areas where

ethical issues arise in international business
such as employment practices, human rights,
environmental pollution, corruption, and
moral obligations are explored. Then the
discussion moves to the straw men
approaches to ethics. Next, the basic
philosophical theories that offer a foundation
for ethical decision-making are examined.
Finally, the roots of unethical decision-
making and how to make ethical decisions are
addressed.
The opening case explores the ethics of

exporting used vehicle and industrial batteries
to Mexico to extract and resell the lead
components in the batteries. Lead is a highly
toxic metal and the environmental impact on
workers and surrounding areas is extremely
hazardous. The closing case explores the
substandard working conditions in a Chinese
factory that supplies, directly and indirectly,
well-known computer companies including
Dell, Hewlett-Packard, and Microsoft.
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
OUTLINE OF CHAPTER 5: ETHICS IN INTERNATIONAL BUSINESS
Opening Case: Exporting Used Batteries to Mexico
Introduction
Ethical Issues in International Business

Employment Practices
Human Rights
Environmental Pollution
Corruption
Moral Obligations
Management Focus: Making Apple’s iPod
Management Focus: Unocal in Myanmar
Management Focus: Corruption at Daimler
Ethical Dilemmas
The Roots of Unethical Behavior

Personal Ethics
Decision-Making Processes
Organizational Culture
Unrealistic Performance Expectations
Leadership
Societal Culture
Philosophical Approaches to Ethics

Straw Men
Utilitarian and Kantian Ethics
Rights Theories
Justice Theories
Focus on Managerial Implications

Hiring and Promotion
Organization Culture and Leadership
Decision-Making Processes
Ethics Officers
Moral Courage
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Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Working Conditions in a Chinese Factory
CLASSROOM DISCUSSION POINT

Create a hypothetical business scenario, then ask students to consider the ethics involved.
For example, suppose a British manager pays a Saudi prince 1% of the contract he helps
negotiate in the Kingdom of Saudi Arabia.
Ask students whether the British manager acted ethically. Jot the responses of students on
the board according to whether students believe the action was ethical or unethical, and the
reasoning behind the argument.
Now, ask students about the following scenario. A U.S. law firm has box seats at all the
major professional games (baseball, hockey, basketball) and season tickets to the nearest
Big-10 conference university games. The partners take their prospective clients to these
games, wine and dine them, and play golf together at the firm’s expense at posh courses.
In ethical terms, what are the differences in these behaviors?

Do cultural differences influence responses?
OPENING CASE: Exporting Used Batteries to Mexico

Summary
The opening case describes the deplorable working conditions and the environmental
impact of extracting lead components for resale from used vehicle and industrial batteries.
Most of the exporting of lead batteries to Mexico is done by intermediaries in the United
States that buy up old batteries and then ship them over the border to the cheapest
processor, typically a Mexican company. Some of the larger U.S. companies in this type
of business try to adhere to U.S. standards—typically by building their own facilities in
Mexico. However, many of the smaller U.S. companies leave it up to their Mexican
suppliers to monitor employee health effects and environmental impacts to the local region.
Discussion of the case can revolve around the following questions.
1. Why do U.S. companies contract out to factories like the ones in Mexico? Discuss the
advantages and disadvantages of outsourcing to other countries.
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2. Should U.S. businesses that contract with Mexican companies be held responsible for
working conditions in the foreign facilities? Why or why not?
3. How do companies that outsource this dangerous lead recycling process contribute to
the harsh working conditions found at these facilities in Mexico? Explain your response.
Another Perspective: To learn more about Mexico’s lead-emissions standards, go to

{http://seattletimes.com/html/nationworld/2020640704_mexicobatteriesxml.html}.
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by clicking
on “view,” then on “notes.” The following provides a brief overview of each Power Point
slide along with teaching tips, and additional perspectives.
Slide 5-3 What Is Ethics?

Ethics refers to accepted principles of right or wrong that govern the conduct of a person,
the members of a profession, or the actions of an organization.
Slide 5-4 Ethical Issues in International Business

The most common ethical issues in business involve:
• employment practices
• human rights
• environmental regulations
• corruption
• the moral obligation of multinational companies
Another Perspective: The Carnegie Council on Ethics and International Affairs maintains
a very substantive and thought-provoking website at {http://www.carnegiecouncil.org/}.
This site contains publications that comment on many of the ethical issues that surround
globalization and international business.
Slides 5-5 and 5-6 Employment Practices

Often employment practices differ among nations. What is the MNC’s obligation?
Should home standards be followed, even in less developed countries? Should local
standards be embraced? What is the right basis for employment-related ethical
decisions?
Slides 5-7 and 5-8 Human Rights

The idea of what constitutes human rights varies considerably across national borders.
How can the tensions that this reality fosters be reconciled?
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Slide 5-9 Environmental Pollution

Ethical issues arise when environmental regulations in host nations are far inferior to
those in the home nation.
The tragedy of the commons occurs when a resource held in common by all, but owned
by no one, is overused by individuals, resulting in its degradation.
Another Perspective: Consumers International {http://www.consumersinternational.org/}

is dedicated to protecting the rights of consumers worldwide. In doing so, it promotes
ethical behavior on the part of companies. Go to the site and explore some of the
organization’s current efforts.
Slides 5-10 and 5-11 Corruption

The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to
foreign government officials in order to gain business.
Slides 5-12 and 5-13 Moral Obligations

Social responsibility refers to the idea that business people should take the social
consequences of economic actions into account when making business decisions, and that
there should be a presumption in favor of decisions that have both good economic and
good social consequences.
Slide 5-14 Ethical Dilemmas

Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
The ethical obligations of a multinational corporation toward employment conditions,

human rights, corruption, environmental pollution, and the use of power are not always
clear cut.
Slides 5-15 through 5-18 The Roots of Unethical Behavior

The causes of unethical behavior are complex and reflect:
• Personal ethics
• Decision-making processes
• Organization culture
• Unrealistic performance expectations
• Leadership
• Societal culture
Business ethics reflect personal ethics (the generally accepted principles of right and
wrong governing the conduct of individuals). The personal ethical code that guides our
behavior comes from a number of sources, including our parents, our schools, our
religion, and the media.
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Home country managers working abroad in multinational firms may experience more
than the usual degree of pressure to violate their personal ethics because they are away
from their ordinary social context and supporting culture, and they are psychologically
and geographically distant from the parent company.
Business people sometimes do not realize that they are behaving unethically simply
because they fail to ask the relevant question—is this decision or action ethical?
The term organization culture refers to the values and norms that are shared among
employees of an organization.
In a company with an organizational culture that de-emphasizes business ethics, all

decisions are reduced to the purely economic.
When there is pressure from the parent company to meet performance goals that are
unrealistic, and can only be attained by cutting corners or acting in an unethical manner,
unethical behavior may result.
Leaders are vital in helping a firm establish its organization culture, and setting examples.
If leaders are not acting ethically, other employees may not act ethically. Societal culture
can also influence behavior.
Slide 5-19 Philosophical Approaches to Ethics

There are several approaches to ethics including the straw men (the Friedman doctrine,
cultural relativism, righteous moralist, and the naïve immoralist), the Utilitarian
approach, the Kantian approach, and rights and justice theories.
Slides 5-20 and 5-21 Straw Men

Straw men approaches to business ethics are approaches that are raised by business ethics
scholars primarily for the purpose of demonstrating that they offer inappropriate
guidelines for ethical decision making in a multinational enterprise. Four such
approaches are the Friedman doctrine, cultural relativism, the righteous moralist, and the
naïve immoralist.
Slides 5-22 and 5-23 Utilitarian and Kantian Ethics

In contrast to the straw men, most moral philosophers see value in utilitarian and
Kantian approaches to business ethics. The utilitarian approach to business ethics dates
back to philosophers such as David Hume, Jeremy Bentham, and John Stuart Mill.
Utilitarian approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences. An action is judged to be desirable if it leads to the
best possible balance of good consequences over bad consequences.
Slide 5-24 Rights Theories

Rights theories recognize that human beings have fundamental rights and privileges that
transcend national boundaries and culture. Moral theorists argue that fundamental human
rights form the basis for the moral compass that managers should navigate by when
making decisions that have an ethical component.
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Slide 5-25 Justice Theories

Justice theories focus on the attainment of a just distribution of economic goods and
services. A just distribution is one that is considered fair and equitable. There is no one
theory of justice, and several theories of justice conflict with each other in important
ways. One important and influential theory of justice was set forth by John Rawls who
argued that all economic goods and services should be distributed equally except when an
unequal distribution would work to everyone’s advantage.
Slides 5-26 through 5-34 Ethical Decision Making

Five things an international business can do to make sure that ethical issues are
considered in a business decision are:
(1) Hire and promote people with a well grounded sense of personal ethics
(2) Build an organizational culture that places a high value on ethical behavior
(3) Make sure that leaders within the business not only articulate the rhetoric of
ethical behavior, but also act in manner that is consistent with that rhetoric
(4) Put decision-making processes in place that require people to consider the ethical
dimension of business decisions
(5) Develop moral courage
Not only should businesses strive to identify and hire people with a strong sense of
personal ethics, but it is also in the interests of prospective employees to find out as much
as they can about the ethical climate in an organization.
To foster ethical behavior, businesses need to build an organization culture that places a
high value on ethical behavior.
Business people need a moral compass to help determine whether a decision is ethical.
It is important to recognize that employees in an international business may need

significant moral courage.
Managers can also use a five-step process to think through ethical problems.
To ensure ethical behavior in a business, a number of firms now have ethics officers.
Slide 5-35 Summary of Decision-Making Steps

Not all ethical dilemmas have an obvious solution. In the case of a true dilemma, firms
must rely on the decision-making ability of their managers, and these managers need to
make as balanced a decision as possible.
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CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: A visiting American executive finds that a foreign subsidiary in a poor
nation has hired a 12-year-old girl to work on a factory floor, in violation of the
company’s prohibition on child labor. He tells the local manager to replace the child and
tell her to go back to school. The local manager tells the American executive that the
child is an orphan with no other means of support, and she will probably become a street
child if she is denied work. What should the American executive do?
ANSWER 1: This question, which illustrates a potentially very real ethical dilemma
facing managers working in foreign subsidiaries, is designed to stimulate class
discussion. Students should recognize that neither alternative—violating the company’s
position on child labor, nor putting the child out on the streets—seems acceptable. In the
end, many students may agree that allowing the child to continue to work in the factory is
the lesser of the two evils.
QUESTION 2: Drawing upon John Rawls’s concept of the veil of ignorance, develop an
ethical code that will (a) guide the decisions of a large oil multinational toward
environmental protection, and (b) influence the policies of a clothing company to
outsourcing of manufacturing process.
ANSWER 2: John Rawls suggests that a decision is just and ethical if people would
allow for it when designing a social system under a veil of ignorance. Rawls’s veil of
ignorance is a conceptual tool that can contribute towards the moral compass that
managers can use to help them navigate through difficult ethical dilemmas. This question
can produce some interesting responses particularly in a class with a diverse group of
nationalities.
QUESTION 3: Under what conditions is it ethically defensible to outsource production to

the developing world where labor costs are lower when such actions also involve laying
off long-term employees in the firm’s home country?
ANSWER 3: This question is likely to stimulate some lively discussion, particularly if

students have personally felt the impact of this practice. Many U.S. companies are
outsourcing not only blue collar work, but also white collar positions to the developing
world. In fact, students today are facing a tenuous job market where positions that they
may have sought when they began their college degrees are being “shipped abroad.”
Some students will argue that companies have to do what is best for all stakeholders, and
if that means taking advantage of cheaper labor costs elsewhere, then that is the
appropriate strategy. Others, however, will probably argue that companies owe a social
debt to their home countries, and that loyalty from long-term employees should be
rewarded.
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QUESTION 4: Are facilitating payments (speed payments) ethical?
ANSWER 4: Students will probably be divided on this question, and a lively debate
should ensue. Certainly, the notion of when in Rome, do as the Romans do applies.
However, those taking this perspective should recognize that it may be difficult to draw
the line on exactly what is acceptable under this guise, and when bribery goes too far.
QUESTION 5: A manager from a developing country is overseeing a multinational’s

operations in a country where drug trafficking and lawlessness are rife. One day, a
representative of a local “big man” approaches the manager and asks for a “donation” to
help the “big man” provide housing for the poor. The representative tells the manager
that in return for the donation, the “big man” will make sure that the manager has a
productive stay in his country. No threats are made, but the manager is well aware that
the “big man” heads a criminal organization that is engaged in drug trafficking. He also
knows that the “big man” does indeed help the poor in the run down neighborhood of the
city where he was born. What should the manager do?
ANSWER 5: Students will probably approach this question in very different ways. Some
students will probably argue that because the “big man” in question is involved in
unethical behavior like drug trafficking, the manager should not even consider making
the “donation.” Other students may take the perspective that because drug trafficking is a
fact of life in some countries, this needs to be viewed differently. If the “big man” is
actually using his muscle to provide assistance to help the poor, then perhaps the manager
should consider making the donation.
QUESTION 6: Reread the Management Focus feature on Unocal and answer the
following questions:
a. Was it ethical for Unocal to enter into a partnership with a brutal military dictatorship
for financial gain?
b. What actions could Unocal have taken, short of not investing at all, to safeguard the
human rights of people impacted by the gas pipeline project?
ANSWER 6:
a. Unocal made its investment in Myanmar just as many other companies were leaving
the country in protest of the nation’s brutal military dictatorship. The company had
formed an agreement with the government that involved clearing a path for a new
pipeline. The investment became controversial when, in order to fulfill the agreement,
Myanmar’s army forcibly moved villagers and then forced them to work under slave-like
conditions. Unocal claims it had no knowledge of what was occurring, but this claim was
rejected by a judge who heard the case that was filed against Unocal on behalf of
Myanmar villagers.
b. Students will probably be familiar with the notion that even if something is not
explicitly forbidden, it does not mean it is right. This idea would certainly seem to apply
in this case. Ethical responsibility goes beyond the letter of the law to encompass the
idea of behaving in a certain way simply because it is the right thing to do. Students will
probably agree that the company failed to act in an ethical manner and that while it may
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not have directly participated in the brutality against villagers, Unocal did have a
responsibility to oversee what was going on and ensure that people were treated fairly.
CLOSING CASE: Working Conditions in a Chinese Factory
Summary
The closing case describes the deplorable working conditions at the Metai factory in China
that supplies computer parts directly to U.S. computer maker Dell, and indirectly to
Hewlett Packard and Microsoft. Workers at the factory work long hours doing monotonous
tasks and have just two days per month off. Wages are very low, and employees are
forbidden to converse, listen to music, or even take bathroom breaks while on the job.
When alerted to the conditions at the factory in early 2009, all three companies expressed
dismay and promised prompt investigations and appropriate action, however, by 2011, no
efforts to improve the situation for workers at the factory had been made. Discussion of
the case can revolve around the following questions.
QUESTION 1: What enables the owners of the Metai factory profiled in this case to get
away with such awful working conditions?
ANSWER 1: Companies involved in international business face these difficult issues on a

daily basis. Government officials, particularly in countries like China, are quick to look
the other way when it comes to ensuring that employee safety is a top priority in factories
that can be considered sweatshops.
QUESTION 2: Should U.S. companies like Microsoft, Dell, and Hewlett-Packard be held
responsible for working conditions in foreign factories that they do not own, but where
subcontractors make products for them?
ANSWER 2: Students’ opinions will vary and should make for a lively class discussion.
Although U.S. companies have control over their own manufacturing facilities, when it
comes to outsourcing work to companies halfway around the world they walk a fine line
between manufacturing components that are profitable and making sure employees of
their overseas vendors are treated fairly. This question brings the concept of moral
dilemma into the discussion and how much pressure global companies can bring to bear
on companies that do work for them.
QUESTION 3: What labor standards regarding safety, working conditions, overtime, and
the like should U.S. companies hold foreign factories to: those prevailing in that country
or those prevailing in the United States?
ANSWER 3: Student answers will vary to this thought-provoking question. Global

companies have sought off-shore vendors in an effort to produce products and
components as inexpensively as possible. It is unrealistic to think that foreign vendors
will adhere to the labor standards that are expected and required in the United States.
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However, these global companies need to continue to communicate their expectations in

terms of employee safety and product quality to their overseas vendors on a regular basis.
QUESTION 4: Do you think the U.S. companies mentioned in this case need to make
changes to their current policies? If so, what? Should they make changes even if they
hinder their ability to compete in the marketplace?
ANSWER 4: U.S. companies have a responsibility to be sure foreign vendors are doing
their best to ensure employee safety. In this era of social media, one wrong move on the
part of a foreign vendor with regard to hazardous conditions in their facilities could cause
global companies to experience backlash from their customers with regard to turning a
blind eye to sweatshop conditions in which their products are manufactured. U.S.
companies need to balance their ability to produce products at reasonable costs with the
ability to monitor and correct any conditions that they deem hazardous.
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Are Western Consumers Willing to Pay More for Apparel?

Run Time: 9:21
Abstract: This video explores claims by garment workers in Cambodia that the
conditions in the factories in which they work and the wages they earn are substandard,
and responses, from customers including U.S. retailer GAP, to the allegations of human
rights violations.
Key Concepts: ethics, international labor rights, exports, global economy, global
production, competitive advantage, foreign investment, globalization, level of economic
development, human rights
Notes: Labor unrest in Cambodia is putting the spotlight once again on possible human
rights violations in the garment industry. Cambodian workers are claiming that their
working conditions are substandard, and that they are underpaid. The country’s booming
garment industry has grown from virtually nothing just 20 years ago, to a thriving
operation. Today, the country depends on the garment industry, and in particular garment
exports, for much of its revenue. Some 400,000 people work in 300 factories located in
or around Phnom Phen. The foreign-owned factories sell primarily to companies in
Europe and North America. Workers make about $61 per month. Now, however,
questions are being raised as to whether the country’s growth in the garment industry has
actually benefitted workers.
According to Ken Loo of Cambodia’s garment marketing association, the claims by the
workers are distorted. Ken Loo, who represents factory owners, believes that when
overtime pay is factored in, garment factory workers are actually paid closer to $91 per
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month, and in fact out-earn many teachers, policemen, and civil servants. Ken Loo
worries that if there is too much pressure for higher wages, investors will simply switch
their operations to countries like Bangladesh were labor regulations are virtually
nonexistent.
Cambodia’s single biggest buyer of garments, U.S. retailer GAP, believes that the claims
of human rights violations are false. Indeed GAP spokesperson Bobbi Silten argues that
it was Cambodia’s strict ethical manufacturing standards that attracted GAP in the first
place. The country has been one of the firm’s top sourcing locations for the last decade.
Ken Loo challenges this claim though, noting that during the global recession, the
company shifted some of its sourcing to cheaper Bangladesh. In the end, the real issue
may come down to a basic debate between following ethically sound, but more costly
manufacturing processes versus providing goods at prices that are attractive to
consumers.
Discussion Questions and Answers
1. Consider the allegations by factory workers in Cambodia. Why do so many workers

continue to work in the factories when they are unhappy with the situation there? What
does this tell you about the challenges facing developing economies?
Answer: Workers in Cambodia claim they are being treated unfairly by their employers.
Allegations against factory owners include claims of long workdays, poor wages, and a
lack of health insurance and retirement benefits. Factory owners disagree with these
allegations claiming that workers are actually paid better than civil servants and
policemen. Moreover, they point out that workers are not forced to accept the jobs, they
can in fact, look elsewhere for better positions. Students will probably recognize that the
situation in Cambodia is not unlike that of many developing economies where people,
often young women, move to the city and take jobs in factories in order to support family
members in rural areas. Workers typically live in crowded rooms and endure long work
hours. Some students may point out though, that while these conditions are clearly not
optimal, it may not be the situation at the factory itself that is the issue, but rather the
problems in the rural areas where subsistence farming is the only option. In Cambodia
for example, garment workers are earning 40 percent more than national per capita GDP,
yet they are trying to support not only themselves, but entire families as well.
2. Discuss Cambodia’s growing dependence on the garment industry. What challenges

does this policy present in the long-term? What should Cambodia be doing to ensure that
its dependency on the industry does not prove to be a liability for the country?
Answer: The garment industry is a vital part of Cambodia’s economy. Not only does the
industry employ some 400,000 Cambodians, it is also responsible for three of every four
dollars that come into the country. Yet, just two decades ago, the industry was
nonexistent. Many students will recognize that while the success of the industry is to be
commended, the growing dependence on a single industry puts the country in a
vulnerable position. Indeed, during the recent global recession, the country saw some of
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its business being diverted to Bangladesh, a country where production is cheaper still.
Most students will probably suggest that Cambodia reduce its vulnerability by beginning
to diversify its industrial base by offering incentives to firms outside the garment industry
to invest.
3. Some people believe that pressure to increase wages for garment workers in Cambodia
will ultimately backfire as production moves elsewhere. Do you agree? Should garment
workers simply be happy they have a job?
Answer: Ken Loo of the Cambodian garment manufacturing association representing

factory owners, claims that the pressure for factory owners to increase wages will
ultimately backfire because production will simply be shifted to alternate locations.
Cham Prasidh, Cambodia’s minister of commerce, agrees noting that the factory owners
actually have very little margin to work with, and if higher wages were imposed, would
have little choice but to move elsewhere leaving thousands without jobs. Many students
will find this a challenging issue. On the one hand, they will be sympathetic to the plight
of the garment worker, but on the other hand, will recognize the realities of global
production and the importance of price. Some students will probably point out that the
country’s lack of a diversified industrial base has put it in a difficult position.
4. What role do companies like GAP play in this situation? Do they bear any
responsibility for ensuring that workers are paid higher wages? Would you as a
consumer really be willing to pay more for clothes if it ensured that workers in another
country had a better standard of living?
Answer: U.S. retailer GAP has bought its garments from Cambodia for the last decade.
Today, the country is one of its top ten sourcing locations. According to spokeswoman
Bobbi Silten, the country’s strong ethical labor standards are a major factor in this
strategic decision. Most students will probably agree that companies do indeed bear
some responsibility for ensuring that the factories they buy from are complying not only
with local regulations, but also basic ethical standards. However, students may also note
that determining exactly what constitutes a fair wage can be difficult to determine. In
Cambodia for example, factory workers make as much or more than teachers and civil
servants. Many students will probably agree that for most people, price is an important
factor in a decision to purchase. If companies like GAP are forced to price their products
higher in because of higher wages, they could find that their own sales drop. Students
taking this perspective will probably suggest that while many consumers say that they
support higher wages and better working conditions for workers in developing
economies, their purchasing decisions do not always support their claims.
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INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: Hazardous Manufacturing
Learning Objectives
The purpose of this video is to help you:
❖ Explore corporate social responsibility for multinational companies.
❖ Identify problems associated with offshore manufacturing and the buyer-supplier
relationship.
❖ Recognize the impact of foreign companies on the host country.
❖ Understand how companies can incorporate social responsibility into their strategies.
Key Words
❖ Corporate ethics
❖ Corporate social responsibility
❖ Foreign direct investment
❖ Impact of the multinational company on the host country
❖ Globalization
Synopsis
An investigation by the London Sunday Times has revealed that tons of waste is being
illegally dumped on the outskirts of Maseru in Africa. Some of the illegal waste is
tagged with the names of companies like Gap and Levi Strauss. The waste is coming
from garment manufacturers that supply large well-known multinational companies.
Each day, dozens of very poor children search through the waste looking for anything of
value that they can sell. It is a dangerous process. Hidden among the scraps of fabric are
sharp razors and needles used in the manufacturing process. Moreover, a fire is
continually burning at the dump filling the air with acrid smoke that gives many children
chest infections. Chemicals are also being dumped. One woman claimed that she was
covered with sores after touching chemicals hidden in the waste.
The arrival of garment manufacturing to the area was supposed to have been a good thing
for the region. Indeed, contracts with companies like Gap and Levi Strauss created
thousands of new jobs in Lesotho. However, as a condition of being awarded a
manufacturing contract, the companies agreed to adhere to strict codes of social and
environmental responsibility, promises they have seemingly broken. At the textile mill
that supplies denim to Gap and Levi Strauss a broken pipe spills untreated bright blue
waste water into the water table. According to local residents, the pipe has been leaking
for years. One woman claims that the water smells terrible and makes people ill. An
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environmental activist points out that the companies claim to be helping Africa while at
the same time they are polluting the water, the land, and the air. Evidence of his claims
can be seen in the nearby river where scraps of material collect along the banks and the
mud has turned bright blue.
When the problems were initially reported, Gap, which takes pride in its reputation as
being a socially responsible organization, quickly moved to investigate and correct the
situation. The company conducted its own ground investigation and also hired an outside
firm to explore the issue. One factory was put on immediate notice until the issues were
adequately resolved. Levi Strauss also promised to take action, and committed to
working closely with both suppliers and government leaders to ensure that its operations
were conducted in a socially responsible manner. However, it seems that without the
initial investigation by the London Sunday Times the problems could have gone on
unchecked for some time leaving one to wonder whether people would still buy Gap and
Levi jeans if they knew how their purchase was affecting people living on the other side
of the world.
Discussion Questions
1. Should multinational companies doing business in developing companies behave
according to local standards or according to the standards in their home countries?
2. What was the real cost of the jobs created through contracts with Levi Strauss and
Gap? In your opinion, was the country more concerned with job creation and the
economic development that could ensue than damage to the environment? Did Africa in
essence trade the environment for jobs?
3. In your opinion, should Gap and Levi Strauss be held responsible for the
environmental violations that occur at their suppliers’ operations? Why or why not?
4. In your opinion, was the response by Gap to the investigation by the London Sunday
Times appropriate? What steps should companies like Levi Strauss and Gap take to
ensure that problems like the ones in Maseru do not occur again?
INCORPORATING globalEDGE™ EXERCISES

Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
Promoting respect for universal human rights is a central dimension of many countries’
foreign policy. As history has shown, human rights abuses are an important concern
worldwide. Some countries are more ready to work with other governments and civil
society organizations to prevent abuses of power. Begun in 1977, the annual Country
Reports on Human Rights Practices are designed to assess the state of democracy and
human rights around the world, call attention to violations, and – where needed – prompt
5-16
needed changes in U.S. policies toward particular countries. Find the latest annual
Country Reports on Human Right Practices for the BRIC countries (Brazil, Russia, India,
and China), and create a table to compare the findings under the “Workers Rights”
sections. What commonalities do you see? What differences are there?
Exercise 2
The use of bribery in the business setting is an important ethical dilemma many
companies face both domestically and abroad. The Bribe Payers Index is a study
published every three years to assess the likelihood of firms from 28 leading economies
to win business overseas by offering bribes. It also ranks industry sectors based on the
prevalence of bribery. Compare the five industries thought to have the largest problems
with bribery with those five that have the least problems. What patterns do you see? What
factors make some industries more conducive to bribery than others?
Answers to Exercises
Exercise 1
The report can be accessed by searching for the term “Country Reports on Human Rights
Practices” at http://globaledge.msu.edu/ResourceDesk/. The Country Reports on Human
Rights Practices is the only source in this search, and is published by U.S. Department of
State. This resource is found under the globalEDGE category “Research: Multi-
Country”. Be sure to click on the Resource Desk link to search this area of the
globalEDGE website.
Search Phrase: “Country Reports on Human Rights Practices”

Resource Name: U.S. Department of State: Country Reports on Human Rights Practices
Website: http://www.state.gov/g/drl/rls/hrrpt/
globalEDGE™ Category: “Research: Multi-Country”
Exercise 2
The report can be accessed by searching for the term “Corruption Perceptions Index” at
http://globaledge.msu.edu/ResourceDesk/. The Corruption Perceptions Index (CPI) is a
study posted by Transparency International. This resource is found under the
globalEDGE category “Research: Multi-Country”. Be sure to click on the Resource Desk
link to search this area of the globalEDGE website.
Search Phrase: “Corruption Perceptions Index”

Resource Name: Internet Center for Corruption Research
Website: http://www.transparency.org/policy_research/surveys_indices/cpi
Website: http://www.transparency.org/policy_research/surveys_indices/cpi
End of Part Case Notes

5-17
Part Two
Siemens Bribery Scandal
1. What explains the high level of corruption at Siemens? How did managers engaged in
corruption rationalize it?
Answer: Most students will probably suggest that the high level of corruption at Siemens
is a result of the company’s corporate culture. Prior to 1999, bribery was not prohibited
in Germany. Accordingly the company viewed bribes as a necessary component in its
standard operating strategy. The practice became ingrained in the company’s culture and
when it was made illegal by the German government, Siemens made the decision to
continue to use bribes, but make the process less transparent. Siemens actually believed
that the decision to continue to engage in bribes helped protect its employees by helping
the company to remain competitive.
2. What do you think would have happened to a manager at Siemens if he or she had
taken a stand against corrupt practices?
Answer: Since Siemens appears to have viewed bribery as a necessary part of securing
the contracts it needed to stay in business most students will probably conclude that a
manager who took a stand against the practice would probably have been terminated or at
least moved to a non-essential low level position. Students will probably note that the
practice was so ingrained in the firm that managers even signed documents indicating
they were not engaging in bribery knowing all the while that they actually were.
3. How does the kind of corruption Siemens engaged in distort competition?
Answer: Many competitors of Siemens complained that the company’s practices made it
difficult for them to compete. By having an unfair advantage with government officials
who awarded contracts, Siemens was distorting the playing field. Some students may
also note that by making bribery a standard practice in the industry, Siemens knowingly
fostered a culture of corruption in countries that then spilled over into other industries as
well.
4. What is the impact of corrupt behavior by Siemens on the countries where it does
business?
Answer: Siemens’ continual willingness to bribe government officials in order to win

contracts made corruption a seemingly legitimate and acceptable way of business in some
countries. However, the practice not only meant less competition, it also affected prices
paid by local residents in some countries.
5-18
5. If you were a manager at Siemens and you became aware of these activities what
would you have done?
Answer: Students will probably respond to this question in different ways. Many
students will probably take the ethical high road and claim that they would have taken a
stand against the corrupt way Siemens approached business. Other students however,
may suggest that for long-term employees bribery was considered acceptable and so it is
unlikely that the practice would be viewed as being unethical or illegal. Students might
also suggest that even those who were hired more recently might not take a stand against
the firm on the basis that termination would have been likely and that the internal
corporate culture supported the practice.
Disaster in Bangladesh: The Collapse of the Rana Plaza Building

1. From an economic perspective, was the shift to a free trade regime in the textile
industry good for Bangladesh?
Answer: Until 2005, Bangladesh’s opportunities in the developed nations were governed
by a quota system. However, when the quota system was replaced with free trade
policies Bangladesh was able to increase its exports. The country’s low cost, productive
labor force and its strong network of supporting industries gave it a competitive
advantage in the production of textiles. The country’s exports of garments rose to around
$20 billion in 2012, making it the largest export industry in the country and a primary
driver of economic growth. Western importers looking to diversify their supplier base
were also attracted to the country—even during the global recession of 2008.
2. Economically, who benefits when retailers in Europe and the United States source
textiles from low-wage countries such as Bangladesh? Who might lose? Do the gains
outweigh the losses?
Answer: During the 2008-2009 global recession, Walmart and other retailers increased
their purchases from Bangladesh to take advantage of the country’s low cost garments.
Bangladesh’s low cost, but highly productive workforce and strong supporting
industries give the country a competitive advantage in the textile industry allowing it to
sell garments at lower prices which can then be passed along to consumers. However,
this of course would imply that fewer garments are being purchased locally and that U.S.
workers could find their higher cost jobs are threatened. Many students though will
probably conclude that because more people probably benefit from the lower prices,
overall the benefits of importing from Bangladesh outweigh the negatives.
3. What are the causes of the weak safety record of the Bangladesh garment industry? Do
Western companies that import garments from Bangladesh bear any responsibility for
what happened at the Rana Plaza and other workplace accidents?
Answer: The move of Bangladesh to become a dominant player in the global textile
industry in the last decade is a direct result of the country’s relatively low wage rates,
5-19
investments in boosting productivity levels, and vibrant network of supporting industries.

Unfortunately, it is no secret that Bangladesh suffers from constant disruptions in
electricity because the government has underinvested in power generation and
distribution infrastructure. In addition, the building at Rana Plaza that collapsed was
approved for five floors, but the owners added three more floors by bending the rules--
with no consequences. In hindsight, the building collapse should not have been a total
surprise—with the building being built on a filled-in pond, the foundation was anything
but stable.
4. Do you think the legally binding agreement signed by H&M, Zara, Tesco, and others
will make a difference? Does it go far enough? What else might be done?
Answer: Many students will probably suggest that the world’s largest apparel retailers
need to do more than signing this legal agreement. The five-year agreement is a good
start, but it is imperative that the retailers continue to put pressure on country officials to
address infrastructure shortcomings and make the necessary investments to correct the
problems or risk that there could cause disruptions in the industry. If importers find that
infrastructure problems disrupt their supplies, they could begin to look for new source
countries.
5. What do you think about Walt Disney’s decision not to purchase merchandise from
Bangladesh? Is this an appropriate way of dealing with the problem?
Answer: Student answers will vary. Disney is a high-profile global company that
probably believed it could find comparable manufacturing and low costs in countries
other than Bangladesh—and received good press about its decision from interest groups
and concerned consumers from around the world.
6. What do you think of Walmart’s approach to this problem? Is the company doing
enough? What else could it do?
Answer: Its strategy to hire an outside auditor to inspect Bangladesh factories and publish
the results of the inspections on its website is a decidedly strong move for Walmart. The
company is also trying to make government officials more accountable for the apparel
manufacturing industry in Bangladesh by setting up a call center for garment workers to
report unsafe working conditions and insisting that factory owners make necessary
renovations or risk being removed from Walmart’s list of authorized suppliers.
Teaching Tip: For more information on the status of the textile industry in Bangladesh
and the recent involvement of the United Nations to improve working conditions, see
{http://www.un.org/apps/news/story.asp?NewsID=45953#.UktCILzYXLk}.
5-20
Knights Apparel
1. The case states that higher wage rates at the Alta Gracia factory have raised the cost per
item by 20 percent. Can you see any way in which the philosophy with regard to pay and
working conditions at Alta Gracia might lower costs in the long run?
Answer: Wages at the Alta Gracia factory are roughly three and a half times what other
workers in the area earn and also higher than the industry standard making Knights
Apparel’s costs per unit about 20 percent higher. Most students will probably agree
however, that despite this higher cost basis, this more ethical strategy should pay off in the
long run. Already, the company’s commitment to strong ethics has gained the support of
several large universities, retailers, and student groups. Students will probably suggest that
the greater volume of sales that should come as a result of this support should offset the
lower profit margin on each item sold.
2. Do you think Joseph Bozich would have been able to try the Alta Gracia experiment if
Knights Apparel was a publicly traded enterprise?
Answer: Many students will probably agree that Bozich’s goal of creating a company like
Knight’s Apparel, and specifically the Alta Gracia operation, would have been more
challenging if the company was a publicly traded one. Bozich’s strategy involves lower
profit margins in the short run with the expectation that higher volume in the long run will
offset the lower per unit margins. In contrast, publicly traded companies often sacrifice
long run potential for short term gains in an effort to please stockholders.
3. What do you think might stand in the way of Alta Gracia becoming successful? What
strategies might Bozich adopt to minimize the risk of failure while still adhering to his high
ethical standards?
Answer: So far, Alta Gracia seems to be following a very successful strategy. The “fair
labor” model used at the factory should help achieve a loyal workforce and has resonated
well with target markets. However, Bozich’s business is built on the notion that higher
costs will be offset by higher volume. If competitors can implement policies that promote
ethical responsibility, but still maintain their lower cost basis, the company could see sales
fall. Bozich must carefully monitor competitors and adapt his strategy as necessary.
Already, for example, Nike has put new policies in place designed to encourage suppliers
to behave in a more ethical manner.
4. Alta Gracia serves a niche market, colleges, where there is higher awareness of ethical
issues in apparel production. Do you think the strategy would work if the company tried
to sell to the mass market through retailers like Walmart?
Answer: Many students will probably suggest that the Alta Gracia approach would not
work if the company were trying to sell through retailers like Walmart. Walmart has built
its organization by offering consumers a wide range of products at deeply discounted
prices. Price is key to the firm, and so becomes the main focus when identifying suppliers.
5-21
Since the Alta Gracia model focuses on ethical responsibility rather than price, it would
probably not be a strong contender to supply the store. Most students will probably agree
that if Walmart is to maintain its competitive advantage based on price, it has little choice
but to continue to source its goods from low cost countries—countries where companies
can avoid the costs associated with a business model like the one used at Alta Gracia.
5. Is it ethical for apparel companies to move production around the world in pursuit of
the lowest possible labor costs, even if this means paying wages that are below a living
wage? What if the alternative is not to produce at all?
Answer: Many students will probably take a stand against companies that continually shift
production around the world in search of lower costs. Students sharing this perspective
will probably agree that companies have a moral obligation to pay at least minimum wage
and that if this means not producing at all then so be it. Other students however, may argue
that a job, even a poorly paying one, may be better in some cases than no job at all. Students
taking this perspective may suggest that companies look for ways to make even low paying
jobs better by providing other benefits to employees such as subsidized food or housing.
6. To what extent does the Alta Gracia experiment suggest that good ethics are also good
business practice?
Answer: The publicity and support that the Alta Gracia experiment has generated is a clear
indication that good ethical practices are good for business. Knights Apparel has
avoided the criticism received by companies like Nike that do business with sweatshop
suppliers. Instead, the company has been praised for its proactive stance towards strong
ethics. Many students will probably suggest that the Alta Gracia model could in fact
become the gold standard for other companies looking to make ethics a priority.
Another Perspective: For more information on Knights Apparel, go to the company’s

web site at{ http://www.knightsapparel.com/}.
Japan’s Economic Malaise

1. In the 1980s Japan was viewed as one of the world’s most dynamic economies.
Today it is viewed as one of its most stagnant. Why has the Japanese economy
stagnated?
Answer: Japan’s economy reached its high point in 1989 with companies gobbling up
U.S. assets, property prices soaring, and the Nikkei index reaching its all time high.
However, when the sock market collapsed and property prices plunged, banks sharply
curtailed the easy lending practices that had helped to finance the boom. Consumers,
scared by their shrinking net worth, stopped spending pushing the country into a
recession. Today, the country is still in the throes of the deflation that has gripped Japan
for nearly 30 years. Consumers and businesses expect prices to continue to fall and so
continue to delay their purchases despite newly lowered prices pushing the cycle forward.
5-22
So far, government efforts to stimulate the economy have been ineffective. Today, the
mood in Japan is largely pessimistic.
2. What lessons does the history of Japan over the last 20 years hold for other nations?
What can countries do to avoid the kind of deflationary spiral that has gripped Japan?
Answer: Many students will probably note the similarities between the situation in Japan
that led to its economic collapse and continued malaise to the situation that led to the
2008-2009 recession in the United States and its continued fallout today. Students may
wonder if a lack of sufficient regulation led to the easy money lending practices that
financed Japan’s boom years and whether more control could have prevented the
situation. Some students may also express concern over the government’s attempt to
spend its way out of its economic slump. With Japan’s debt now at 228 percent of its
GDP, the country has few options left to get back on track.
3. What do you think would be required to get the Japanese economy moving again?
Answer: Despite very low interest rates and large investments in public infrastructure
Japan’s economy has continued to stagnate. Much of the population and especially
younger people have little expectation that things will change for the better. Students
may suggest that the country needs to take a new approach to growing the economy.
Many students will probably focus on innovation and recommend that the government
make it a national priority by supporting entrepreneurs and think tanks. Students taking
this perspective will probably point out the connection between innovation and economic
growth. Other students might suggest that the country open its doors to immigrants.
Doing so would expand the market and help support Japan’s aging population.
4. What are the implications of Japan’s economic stagnation for the benefits, costs, and
risks of doing business in this nation?
Answer: Japan’s economic malaise offers both opportunities and challenges for
companies interested in doing business in the country. On one hand money is cheap and
wages are relatively low. On the other hand, consumers are unwilling to spend money
and the future government policies to spark economic growth could make could make it
more difficult for businesses.
5. As an international business, which economy would you rather invest in, that of Japan
or that of India? Explain your answer.
Answer: Responses to this question will differ by student. Some students will probably
suggest that despite some problems with laws governing business in India, the country’s
long-term potential makes it a more attractive destination for investment. Other students,
however, might suggest that Japan’s problems cannot continue indefinitely and that now
is a great time to gain a competitive advantage in the market and be in a position to
capture even more market share as the global economy begins to grow again. In addition,
5-23
students may note that Japan is likely to pose fewer political and legal risks as compared
to India, making it a more attractive investment location.
Another Perspective: To learn how the Japanese government is trying to grapple with its
stagnant economy by increasing taxes, go to {http://www.bloomberg.com/news/2013-10-
01/abe-proceeds-with-japan-s-first-sales-tax-increase-since-1997.html}. Japan was
recently awarded the 2020 Summer Olympics over Madrid and Istanbul—but will the
Olympics provide a much-needed economic stimulus for the country? Go to
{http://www.forbes.com/sites/moneybuilder/2013/09/09/will-the-2020-olympics-restart-
japans-economy-not-a-chance/}for an interesting and thought-provoking article.
Indonesia: The Next Asian Giant?
1. What political factors explain Indonesia’s relative sluggish economic performance when
compared to some of its Southeast Asian neighbors? What economic factors? Are these
two related?
Answer: Indonesia’s economic growth has been hampered for decades, first because of
the dictatorship of former President Suharto and the massive debts that were accumulated
during his regime and more recently because of the country’s excessive red tape and
corruption that make it difficult to start a business. Transparency International ranks
Indonesia among the most corrupt nations in the world. Economic growth has been
hindered by the country’s poor infrastructure and low level of labor productivity.
Students will probably agree that Indonesia’s problems are interrelated. Students may
note for example that the red tape and corruption that scare off potential foreign investors
also mean that the country loses the jobs and the capital that could improve its economy
and infrastructure. In fact, a 2012 ruling by the country’s Constitutional Court declared
that the country’s 2001 oil and gas laws were unconstitutional. Going forward, the
country is requiring foreign companies to sell 51% of their operations back to Indonesian
locals, which may or may not prove to be a positive economic strategy.
2. Why do you think foreign firms exited Indonesia in the early 2000s? What are the
implications for the country? What is required to reverse this trend?
Answer: In the early 2000s Indonesia experienced a significant drop in foreign direct
investment. Most students will probably suggest that foreign companies pulled out of the
country to avoid its red tape, corruption, and generally uncertain economic and political
future, and also to take advantage of higher labor productivity elsewhere. Students may
also note that the country’s poor infrastructure also probably contributed to the drop in
investment. The consequences of the lower level of foreign direct investment have been
significant. Unemployment in the country is high and infrastructure problems persist.
Moreover, the country is now importing oil, a resource it once exported. Students will
probably agree that in order to reverse this trend, the country must make substantial
5-24
efforts to attract new investors by greatly reducing red tape, cleaning up the corruption
problem, and making much needed investments in the country’s infrastructure.
3. Why is corruption so endemic in Indonesia? What are its consequences?
Answer: Some students may link Indonesia’s corruption problems to the low salaries
earned by government bureaucrats. Others may also contend that there is probably a
sense of entitlement among government officials and a feeling that since bribes have been
a way of business for so long they are almost a “legitimate” part of doing business in the
country. However, Indonesia’s seeming unwillingness to eliminate corruption make it an
unattractive destination for foreign investors and a generally difficult location to open any
sort of business.
4. What are the risks facing foreign firms that do business in Indonesia? What is required
to reduce these risks?
Answer: Most students will probably agree that the biggest risks facing foreign investors
in Indonesia are its problems with corruption, its excessive red tape, and its poor
infrastructure. Companies considering investing in the country must be prepared to face
significant paperwork and demands for bribes, as well as deal with infrastructure
problems like brownouts and poor roads.
Another Perspective: Information on doing business in Indonesia is available at

{http://www.doingbusiness.org/data/exploreeconomies/indonesia} and
{http://www.worldbiz.com/indonesia-c-66.html}. A recent article in The New York Times
explains why some multinational firms are betting on a rosy economic future and are
investing heavily in Indonesia; see
{http://www.nytimes.com/2013/04/24/business/global/indonesia-sees-foreign-
investment-surge.html?_r=0}.
5-25

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International Business Competing in The Global Marketplace 10th Edition Hill Solutions Manual 1

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Chapter 05 - Ethics in International Business

International Business Competing in the

Full download at link:

Solution Manual: https://testbankpack.com/p/solution-manual-

Test Bank: https://testbankpack.com/p/test-bank-for-

Ethics in International Business 5

Learning objectives • Explain how managers can

• Identify the causes of

This chapter looks at ethics in international

First, some of the more common areas where

The opening case explores the ethics of

OUTLINE OF CHAPTER 5: ETHICS IN INTERNATIONAL BUSINESS

Opening Case: Exporting Used Batteries to Mexico

Ethical Issues in International Business

Management Focus: Making Apple’s iPod

Management Focus: Unocal in Myanmar

Management Focus: Corruption at Daimler

The Roots of Unethical Behavior

Philosophical Approaches to Ethics

Focus on Managerial Implications

Critical Thinking and Discussion Questions

Closing Case: Working Conditions in a Chinese Factory

CLASSROOM DISCUSSION POINT

In ethical terms, what are the differences in these behaviors?

OPENING CASE: Exporting Used Batteries to Mexico

Another Perspective: To learn more about Mexico’s lead-emissions standards, go to

Slide 5-3 What Is Ethics?

Slide 5-4 Ethical Issues in International Business

Slides 5-5 and 5-6 Employment Practices

Slides 5-7 and 5-8 Human Rights

Slide 5-9 Environmental Pollution

Another Perspective: Consumers International {http://www.consumersinternational.org/}

Slides 5-10 and 5-11 Corruption

Slides 5-12 and 5-13 Moral Obligations

Slide 5-14 Ethical Dilemmas

The ethical obligations of a multinational corporation toward employment conditions,

Slides 5-15 through 5-18 The Roots of Unethical Behavior

In a company with an organizational culture that de-emphasizes business ethics, all

Slide 5-19 Philosophical Approaches to Ethics

Slides 5-20 and 5-21 Straw Men

Slides 5-22 and 5-23 Utilitarian and Kantian Ethics

Slide 5-24 Rights Theories

Slide 5-25 Justice Theories

Slides 5-26 through 5-34 Ethical Decision Making

It is important to recognize that employees in an international business may need

Slide 5-35 Summary of Decision-Making Steps

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 3: Under what conditions is it ethically defensible to outsource production to

ANSWER 3: This question is likely to stimulate some lively discussion, particularly if

QUESTION 4: Are facilitating payments (speed payments) ethical?

QUESTION 5: A manager from a developing country is overseeing a multinational’s

CLOSING CASE: Working Conditions in a Chinese Factory

ANSWER 1: Companies involved in international business face these difficult issues on a

ANSWER 3: Student answers will vary to this thought-provoking question. Global

However, these global companies need to continue to communicate their expectations in

Title: Are Western Consumers Willing to Pay More for Apparel?

Discussion Questions and Answers

1. Consider the allegations by factory workers in Cambodia. Why do so many workers

2. Discuss Cambodia’s growing dependence on the garment industry. What challenges

Answer: Ken Loo of the Cambodian garment manufacturing association representing

Title: Hazardous Manufacturing

INCORPORATING globalEDGE™ EXERCISES

Search Phrase: “Country Reports on Human Rights Practices”